General Circular 08 of 2014 and Financial Year

Before discussing the circular, I will check definition of financial year in the Companies Act 1956. The clause (17) of section 2 of the Act define “financial year means, in relation to any body corporate, the period in respect of which any profit and loss account of the body corporate laid before it in annual general meeting is made up, whether that period is a year or not.”

Accordingly, in that Act, Financial year was not a period of twelve month or three hundred and sixty five days. This may commenced from any date and end to any date subject to certain regulatory approval. There was no fixed date for commencement of financial year under earlier law.

Recently applicable the Companies Act, 2013 define financial year differently. Clause (41) of Section 2 of the Act start with In case of a company and body corporate, Financial Year means the period ending on the 31st day of March every year.

Now, the Companies Act 2013 becomes applicable from 1st April 2014. This is a reason of question of applicability of financial year related queries.

If a company starts its financial year from 1st January each year, was it means end of that current financial year on 31st March 2014? If not, which law related to depreciation and annual accounts is applicable on the company?

Present circular issued on 4th April 2014 try to resolve these queries to some extent:

“Although the position in this behalf is quite clear, to make things absolutely clear it is hereby notified that the financial statements (and documents required to be attached thereto), auditor report and Board’s report in respect of financial years that commenced earlier than 1st April 2014 shall be governed by the relevant provisions/ schedules/ rules of the Companies Act, 1956 and that in respect of financial years commencing on or after 1st April 2014, the provisions of the new Act shall apply.”

Firstly, if a financial year has started on 31st March 2014 (for any reason whatsoever); all provisions of the Companies Act, 1956 related to financial year and accounts shall apply.

Secondly, from next financial year which starts on or after 1st April 2014, company has to comply with all provisions of the Companies Act, 2014.

Most important interpretation comes here. This affects all companies with a financial year different year not starting on 1st April of a year.

For all practical purpose, definition of financial year under the Companies Act 2013 shall apply form next financial year. We may read this definition again; as I discussed in an earlier post here:

“In case of a company and body corporate, Financial Year means the period ending on the 31st day of March every year.

Where the company or body corporate has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up.

On an application made by a company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year.

This may be clear that where tribunal allow, the company or body corporate may have a financial year which may not end on the 31st day of March.

A company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per this definition of financial year.”

This is my opinion that all these companies with different financial year need a compliance planning related to financial year.

Please note: I welcome your comments and feedback. This blog post is not a professional advice. Readers may share this post on social media by using buttons given here.

1. This time a distant possibility as NCLT is not a reality.
2. This is possible in case of Holding or subsidiary of a company incorporated out side India [See Definition Clause (42) of Section 2]
3. Consolidation of Account must take place outside India.

Writer of this blog, Aishwarya Mohan Gahrana is Practicing Company Secretary and Insolvency Professional working with M/s Aishwarya M Gahrana & Associates, a New Delhi based peer reviewed firm of company secretaries having pan India presence through friends and associates. This blog is a knowledge sharing initiative. Views expressed here is of writer; not of the organization(s) he is working with.